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THE executive boards of the International Monetary Fund (IMF) and the World Bank’s International Development Association (IDA) have approved the Heavily Indebted Poor Countries (HIPC) Initiative Completion Point for Somalia, which provides total debt service savings for the country of US$4.5 billion.
In a latest joint statement, the IMF and World Bank said the debt relief will facilitate access to critical additional financial resources that will help Somalia strengthen its economy, reduce poverty, and promote job creation.
Following HIPC Completion Point, Somalia’s external debt has fallen from 64 percent of Gross Domestic Product (GDP) in 2018 to less than six percent by end of 2023.
According to the statement, debt service relief has been provided by the IMF (US$343.2 million), IDA (US$448.5 million), African Development Fund (AfDF) (US$131.0 million), other multilateral creditors (US$573.1 million), as well as by bilateral and commercial creditors (US$3 billion).
Bilateral creditors include members of the Paris Club, creditors from the Arab Coordination Group, and other official bilateral creditors.
“Somalia’s debt relief process has been nearly a decade of cross-governmental efforts spanning three political administrations.
“This is a testament to our national commitment and prioritization of this crucial and enabling agenda,” reads the statement, quoting Somalia’s President, Hassan Sheikh Mohamud.
“For Somalia to move forward in the positive economic direction we all needed, we had to reform our laws, systems, policies, and practices. Reaching the HIPC Completion Point is the fruit of these reforms.
“When my government committed to the reform programme nearly a decade ago, this was the result we envisaged.”
Somalia’s reform journey has been described as a truly national process culminating in the remarkable success of determined economic reform implementation despite external challenges such as painful regular climatic shocks and the ongoing fight against international terrorism.
“We are proud to have reached the HIPC Completion Point,” said Somalia’s Minister of Finance, Bihi Iman Egeh. “Through our enabling reforms, we have consistently raised domestic revenue, strengthened public financial management, improved good governance and central banking operations, and enhanced the capacity of our national institutions. We will build on these successes going forward.”
In this regard, the executive directors of both institutions have determined that Somalia has made satisfactory progress in meeting the requirements to reach the HIPC Completion Point.
Somalia has implemented a poverty reduction strategy for at least one year and maintained a track record of sound macroeconomic management as evidenced by the satisfactory implementation of the Extended Credit Facility (ECF) supported programme, reads the statement.
This performance was achieved despite Somalia having to face the global Covid-19 pandemic, prolonged and severe drought, a desert locust infestation, the impact of external shocks on food supply and prices, and significant security risks.
The country maintained steadfast progress on structural reforms and implemented 13 of 14 floating Completion Point triggers, including on public financial and expenditure management, domestic revenue mobilization, governance, social sectors, and statistics. The IMF executive board, thus, granted a waiver for the adoption and implementation of a single import duty tariff schedule at all ports.
“Somalia has made significant strides in rebuilding its economy and institutions after a devastating civil war. Reaching the HIPC Completion Point is a testament to the Somali authorities’ strong and sustained policy and reform efforts over the past years, despite numerous challenges, as well as the strong support from international partners,” IMF’s director for the Middle East and Central Asia, Jihad Azour, said.
“The Completion Point is a momentous achievement that restores debt sustainability and over time offers access to new external financing to support inclusive growth and poverty reduction.
“Maintaining sound macroeconomic policies and sustaining the reform momentum remains critical after the Completion Point for Somalia to reap the full benefits of the debt relief.”
World Bank vice president for Eastern and Southern Africa, Victoria Kwakwa, said reaching the HIPC Completion Point is a historic milestone for which the Somalia government deserves full credit.
“Somalia has implemented critical reforms in support of pro-poor growth, poverty reduction, better public financial management, and debt management,” said the official.
“These reforms establish the conditions for the effective use of irrevocable debt relief to support the people of Somalia. Deepening structural reforms after the Completion Point will be critical to boost private sector growth and create fiscal space to invest more in human development and infrastructure to support inclusive and resilient growth.”
The World Bank and IMF have since pledged to continue working together to provide the technical assistance and policy guidance the authorities need to achieve these goals.
The Heavily Indebted Poor Countries (HIPC) initiative was launched by the World Bank and IMF in 1996 to create a framework in which all creditors, including multilateral creditors, can provide debt relief to the world’s poorest and most heavily indebted countries to ensure debt sustainability, and thereby reduce the constraints on economic growth and poverty reduction imposed by the unsustainable debt service burdens in affected countries. Somalia is the 37th country to reach Completion Point under the HIPC Initiative.
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